United States v. NORTHEAST CONSTR. CO. OF WEST VIRGINIA
| Decision Date | 29 April 1969 |
| Docket Number | 1349.,Civ. A. No. 1345 |
| Citation | 298 F. Supp. 1135 |
| Parties | UNITED STATES of America for the Use and Benefit of MEVA CORPORATION, Plaintiff, v. NORTHEAST CONSTRUCTION COMPANY OF WEST VIRGINIA et al., Defendants. UNITED STATES of America for the Use and Benefit of MAGNA BUILDING CORPORATION, Plaintiff, v. NORTHEAST CONSTRUCTION COMPANY OF WEST VIRGINIA et al., Defendants. |
| Court | U.S. District Court — Southern District of Georgia |
N. William Pettys, Jr., Augusta, Ga., Ronald A. Harbert, Orlando, Fla., for Magna Bldg. Corp. on crossclaim.
James T. Lewis, McLean, Va., Thomas R. Burnside, Jr., Augusta, Ga., for MevA Corp. on crossclaim.
This is an action for fraudulent misrepresentation in which one construction firm has sued another on the ground that the latter falsely represented the cost and profitability of a job that the plaintiff, Magna Building Corporation, contracted with MevA Corporation to perform as its sub-contractor and which it completed to its damage as well as regret.
The pleadings and the exhibits connected with the Motion for Summary Judgment, together with the deposition of the manager of MevA and the President of Magna, show that in 1966 a contract was entered into between the United States and Northeast Construction Company of West Virginia for the expansion of training facilities at Fort Gordon.
MevA which is in the electrical contracting business sub-contracted with Northeast on September 29, 1966 to perform all the electrical and mechanical work on the job. Magna is both a general and a mechanical contractor. Prior to the Fort Gordon contract the relationship of the two firms was close. They had performed work for one another on the basis of representations made by each. On numerous occasions, due to the closeness of their relationship, they did not carry out the estimating and bidding procedures normal to the contracting business.
Late in September, 1966 MevA informed Magna that it had obtained the contract for the electrical and mechanical work at Fort Gordon and proposed that Magna take over the mechanical part at a price of $790,000. Allegedly, responsible employees of MevA represented to Magna that the mechanical work could be performed for that amount with a reasonable profit. This representation was knowingly false, it is averred, since previous estimates by MevA indicated that the value of the mechanical work was actually $905,000.
On the basis of the representation in question Magna signed a letter of intent on October 20, 1966 and on October 31st of that year entered into a written subcontract with MevA.
The damages claimed, $115,000, represent the difference between the subcontract price for Magna's mechanical work and the value of performing the same.
With the specificity required by Rule 9(b), F.R.Civ.P. Magna alleges all the elements constituting fraud. It is averred (a) that MevA represented that the work could be completed at a cost of $790,000 with at least a nominal profit to Magna, (b) that MevA knew this representation to be false, (c) that MevA intended to deceive Magna by this representation, (d) that there was reliance by Magna upon the representation, and (e) that Magna sustained a loss as the proximate result. These allegations satisfy Georgia law as to stating a claim for relief. McLendon v. Galloway, 216 Ga. 261, 116 S.E.2d 208; Republic Mortgage Corp. v. Beasley, et al., 117 Ga.App. 303, 160 S.E.2d 429; Edwards v. Stiles, 81 Ga.App. 138, 58 S.E.2d 260. However, the Motion for Summary Judgment goes, in factual content, beyond the bare pleadings.
MevA contends that its alleged misrepresentation is insufficient to support an action in fraud because:
(1) The same concerned an event or act which was to take place in the future (i. e., Magna was to profit at the completion of the contracted-for work) and misrepresentation as to futurity is not fraud in the legal sense. Cowart v. Gay et al., 223 Ga. 635, 157 S.E.2d 466; Jackson v. Brown, 209 Ga. 78, 705 S.E. 2d 756; Pantone v. Pantone, 203 Ga. 347, 46 S.E.2d 498.
(2) MevA's representation was not one of fact but merely of opinion and as such cannot be the subject matter of fraud.
(3) Magna contracted with it at arms' length and had an affirmative duty to inquire into the truth of MevA's representations. Failing to do so, it waived its right to claim fraud.
(4) Magna agreed in writing that it fully understood all terms of the agreement and is estopped from claiming that it was unfamiliar with the cost of the job.
The allegations as to misrepresentation are borne out to a considerable extent in the deposition of Grady P. Johnson who in 1966 was employed by MevA Corporation under the title of "Manager of the Eastern United States." His duties involved over-all management of the eastern half of the nation, including bidding of jobs and opening of new offices.
Johnson's testimony leaves no doubt as to the want of ethics involved in getting Magna to perform the mechanical work on the Fort Gordon project. He admitted that he called an official of Magna and told him about the job. At the time MevA had no "take-off."1 I quote from Johnson's testimony.
"Q. Now, you called Rothline Rothlein from Atlanta and told him about the job?
A. Right.
Q. What was his reaction?
A. Well, of course Bob asked me what the job was worth and I told him and he asked how I knew and I said because I had a take-off, that it was very competitive, it was pennies from our job and it was a good price.
Q. You told Bob you had a take-off?
A. Right.
Q. Did you tell him who made the take-off?
A. Yes, I told him our people had made it, Tony Phillips.
Q. Did you tell Bob that the $790,000 was the price indicated by the take-off you had?
A. Certainly.
Q. All right, what had Rothline done if anything?
A. Well, told me to get him a set of drawings and specs as quickly as possible which we did. We put them on the plane that very hour, as a matter of fact, not air mail, these were courier type deliveries and we sent him a set of plans and specs and he told me that he would have a man on the job Monday, which he did, I forget that little guy's name, Bob somebody.
Q. Pine?
A. Pine, Bob Pine and, of course, Bob came equipped with a truck, a piece of transportation, or maybe it was a car, but in any event, he came with some transportation and during that week, I kept trying to get Bob to sign the contract so that we would have a definite goal. As it was, we were still swinging free."
Mr. Johnson further testified:
"And I saw that we didn't have a takeoff now, Pat never told me that we didn't have one and I think you knew this, when we got back there and I saw that we didn't and further more I saw that our electrical was extremely tight then the only thing which was absolutely not true and this is done, I've done it before and I have had it done to me many times, I told him this price that we gave him, what we had on the job, profit and overhead which might not have been the case but yet he had not signed the contract at this point and he had a right to say no and he had a right to take the thing, this was his problem."
In the deposition of Robert R. Rothlein, President of Magna, he testified:
Exhibit A of the Motion for Summary Judgment, which came from Magna's files, indicates that it did do a good bit of independent figuring of the mechanical features of the project before entering into the letter of intent and sub-contract with MevA. The man hours involved and rates of pay were considered and the following summary or tabulation was made:
Air Conditioning &
Heating Materials 70,000
Sheet Metal Subcontract 80,000
Insulation Subcontract 58,000
Pipe & Fittings 61,000
Plumbing Fixtures 43,580
Boiler Tanks 40,000
Sprinkler System Subcontract 5,127
Pipefitter Labor 200,000
Other Labor
Miscellaneous 30,000
Sewage Treatment Plant
The estimate of labor included 2,500 hours on the sewage expansion work. I am unable to say how much of the sewage plant work is included or omitted in the above figures. A schedule of prices which became an attachment to the subcontract between MevA and Magna shows that the sewage treatment work was evaluated at $190,000.
MevA contends that the alleged representations were not statements of fact but merely predictions and opinions as to future profits and events and that, as such, even if false they cannot be the basis of a claim of fraud. The difference between statements of fact and opinion as related to fraud is well recognized in law and an action for fraud based upon mere opinion is insufficient in Georgia. Wrenn & Sons v. Truitt, 116 Ga. 708, 43 S.E. 52; DeMayo v. Walton, 114 Ga.App. 483, 151 S.E.2d 886; Sherwin-Williams Co. v. St. Paul-Mercury Indemnity Co., 97 Ga.App. 298, 102 S.E.2d 919. The difference between fact and opinion is not easily ascertainable and presents a subtle and elusive distinction. See Kohler v. Jacobs, 138 F.2d 440; S & S Builders, Inc. v. Equitable Investment Corp., 219 Ga. 557, 134 S.E.2d 777.
At best, this is an unfirm area for decision and I leave it for more stable ground.
Where a party subsequently asserts fraudulent misrepresentation and reliance thereon to his harm it must be shown that the reliance was justified. Lariscy...
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